Exhibit 99.1
NEWS RELEASE
May 4, 2006
FOR IMMEDIATE RELEASE [AT 6:00 A.M. ET]:
NW NATURAL REPORTS RESULTS FOR THE QUARTER ENDED MARCH 31, 2006 & BOARD INCREASES STOCK BUYBACK PLAN
PORTLAND, Ore. – Northwest Natural Gas Company(NYSE: NWN), dba NW Natural, reported net income for the first quarter 2006 of $41.0 million, up 3 percent from $39.9 million in the first quarter of 2005. Earnings for the first quarter were $1.48 per diluted share, up from $1.43 per diluted share last year, a 3 percent increase.
“We had a good first quarter, one that keeps us on track toward our strategic and financial objectives for 2006,” said Mark Dodson, president and chief executive officer. “Our earnings for the quarter were driven by continued strong customer growth and improved operating results from our regulated utility and interstate gas storage activities.”
Among the highlights for the quarter, the company:
• | Increased earnings per diluted share by 3 percent to $1.48; |
• | Added customers at a growth rate of 3.5 percent over the past 12 months; |
• | Extended terms of the company’s stock repurchase plan, increasing the dollar limit by $50 million to $85 million; |
• | Had its corporate credit rating upgraded to AA- and commercial paper rating to A-1+ by Standard & Poors; and, |
• | Was named one of America’s top 100 “best corporate citizens” for the sixth year in a row. |
First Quarter Detail
NW Natural’s utility operations earned $39.5 million ($1.43 per diluted share) in 2006, up from $38.8 million ($1.40 per diluted share) in 2005. In addition, the company earned $1.4 million (5 cents per diluted share) in the quarter from interstate gas storage operations, compared to $0.9 million (3 cents per diluted share) in 2005, and a gain of $0.1 million (less than 1 cent per diluted share) from subsidiary and other non-utility operations in the period, compared to $0.2 million (less than 1 cent per diluted share) in 2005.
NW Natural’s total gas sales and transportation deliveries in the first quarter of 2006, excluding deliveries of gas stored for others, were 408 million therms, up 11 percent from 369 million therms in 2005. These increases were driven by customer growth and
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weather that was 3 percent colder than last year’s first quarter, yet was 3 percent warmer than average. Net operating revenues (margin) from utility operations were $122.3 million, or 3 percent higher for the quarter compared to $118.9 million in 2005.
Sales to residential and commercial customers in the first quarter of 2006 were 254 million therms, up 10 percent from 231 million therms last year, due mainly to a return to more average weather for the period and customer growth. Sales to residential and commercial market sectors contributed $110.9 million to margin, up 5 percent from $105.8 million in 2005, including NW Natural’s weather normalization and decoupling mechanisms in Oregon, which contributed a net $0.8 million to margin in the first quarter versus $8.1 million in 2005.
NW Natural had more than 624,000 customers at March 31, 2006, an increase of 3.5 percent over the past 12 months. The company estimates that customer growth contributed 7.1 million therms to sales volumes and $3.3 million to margin during the quarter.
“We continue to add customers profitably throughout our service territory,” said Dodson, “and we continue to look for opportunities to add to this growth, particularly with the expansion of the region’s urban growth boundary to the eastern side of the Portland metropolitan area.” NW Natural is in its 20th year of adding customers at a rate in excess of 3 percent, which is twice the national average.
Gas deliveries to industrial customers in the first quarter were 154 million therms, up 11 percent from 138 million therms last year, while margins in this sector were $8.5 million.
NW Natural continues to provide gas storage services to customers in the interstate market from its Mist gas storage field, using storage capacity that has been developed in advance of core utility customers’ requirements. Earnings from the interstate gas storage business segment in the first quarter of 2006 were $1.4 million or 5 cents per diluted share, compared to earnings of $0.9 million, or 3 cents a diluted share in the first quarter of 2005. These results include income from gas storage services as well as income from a contract with an unaffiliated company that seeks to optimize the use of NW Natural’s assets by exchanging gas supplies and trading temporarily unused portions of its gas storage and upstream pipeline transportation capacity.
Operations and maintenance expenses in the first quarter of 2006 were up $1.1 million, or 4 percent, over the same quarter in 2005 when O&M costs increased 7 percent. The 2006 increase was primarily due to higher payroll related expenses and higher benefit costs ($0.7 million), and an increase in uncollectible accounts expense ($0.5 million) related to higher gross operating revenues. The company also began expensing stock options January 1, which resulted in a $0.3 million increase in O&M costs. Bad debt expense as a percent of revenues was 0.41 percent for the first quarter of 2006 compared to 0.38 percent for the first quarter of 2005.
According to Chief Financial Officer David Anderson, “we are beginning to see a structural shift in our operating and maintenance costs, with more cost savings to be identified and implemented over the next few years. Excluding bad debt expense, which
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is covered by revenue increases, O&M increased approximately 2 percent. Our plans continue to target O&M costs to grow slower than customer growth.”
During the period, Oregon customers saved $3.7 million in lower gas costs due to the company’s commodity cost sharing mechanisms. NW Natural’s share of the commodity savings and off-system sales margins realized from its gas purchasing program in the first quarter of 2006 contributed $1.8 million of margin in the first quarter, which was equivalent to last year’s results for the period. In Washington, 100 percent of all gas costs are passed through to customers.
Cash provided by operating activities in the first quarter of 2006 was $98 million, compared to $115 million in 2005. The lower results mainly reflect temporarily higher working capital requirements due to higher gas prices and the timing of payments associated with gas hedge contracts. The company expects that internally generated cash in 2006 should be adequate to meet anticipated capital expenditures.
The company’s capitalization at March 31, 2006 reflected 51.6 percent common equity, 41.8 percent long-term debt, and 6.6 percent short-term debt versus 54.0 percent common equity, 43.7 percent long-term debt, and 2.3 percent short-term debt at March 31, 2005.
Share Buyback Program Extended and Increased
The Board of Directors approved an extension to the company’s share repurchase program to May 31, 2007 and increased the repurchase authority from 2 million shares to 2.6 million shares and increased the dollar limit by $50 million to $85 million. Since the program’s inception in May 2000, the company has repurchased more than 777,000 shares at a total cost of $23.5 million.
Outlook for 2006
NW Natural confirmed its prior estimate that its full-year earnings per diluted share in 2006 will be in the range of $2.12 to $2.27. The company’s earnings guidance assumes normal weather, continued strong customer growth, benefits from cost reduction initiatives, and no significant changes in current regulatory policies. The company continues to target long-term earnings per share growth of 5 percent or more and to maintain a dividend payout ratio of 60 to 70 percent.
Dividend Declaration
The Board of Directors of NW Natural on April 3, 2006 declared a quarterly dividend of 34.5 cents per share on the company’s common stock. The dividends will be paid on May 15, 2006 to shareholders of record on April 28, 2006. The current indicated annual dividend is $1.38 per share.
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Presentation of Results
In addition to presenting results of operations and earnings amounts in total, NW Natural has expressed certain measures in this press release in cents per share on a diluted basis. These amounts reflect factors that directly impact the company’s earnings. NW Natural believes this per share information is useful because it enables readers to better understand the impact of these factors on its earnings.
Conference Call Arrangements
As previously reported, NW Natural will conduct a conference call and Webcast starting at 11:00 a.m. ET (8:00 a.m. Pacific Time) on May 4 to review its first quarter financial results of operations.
To hear the conference call live, please call 800-299-9086 or 617-786-2903 from international points, including Canada. Participants will be asked for their name, company name, phone number, the name of the conference they will be joining (“NW Natural”) and the conference passcode (30801125). A replay of the call will be available approximately two hours after completion of the conference until May 18, 2006. To access the recording, call 888-286-8010, and enter the conference replay passcode number 70493813.
To hear the conference by Webcast, log on to NW Natural’s corporate Website at www.nwnatural.com and select the Webcast icon on the home page. A replay of the Webcast will be available approximately two hours after the conference concludes.
Forward Looking Statements
This report and other presentations made by NW Natural from time to time may contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and other statements that are other than statements of historical facts. The company’s expectations, beliefs and projections are expressed in good faith and are believed to have a reasonable basis. However, each such forward-looking statement involves uncertainties and is qualified in its entirety by reference to the factors described in Part I, Item IA, “Risk Factors,” and in “Forward-Looking Statements” following Part II, Item 7A, in the company’s 2005 Annual Report on Form 10-K and “Forward-Looking Statements” in the company’s most recent Quarterly Report on Form 10-Q that could cause the actual results of the company to differ materially from those projected in such forward-looking statements.
All subsequent forward-looking statements, whether written or oral and whether made by or on behalf of the company, also are expressly qualified by these cautionary statements. Any forward-looking statement speaks only as of the date on which such statement is made, and the company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time and it is not possible for the company to predict all such
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factors, nor can it assess the impact of each such factor or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement.
About NW Natural
NW Natural is headquartered in Portland, Ore., and serves over 624,000 residential and business customers in Oregon and southwest Washington. It is the largest independent natural gas utility in the Pacific Northwest. With customer growth in excess of 3 percent for 19 consecutive years, it is also one of the fastest-growing local distribution companies in the nation. NW Natural has over $1.8 billion in total assets, which includes nearly 14 bcf of underground gas storage capacity within its service territory at Mist, Ore. The company has in place rate mechanisms that help to protect revenues from warmer than average weather and declining consumption. NW Natural has increased its dividends paid on common stock for 50 consecutive years.
-30-
INVESTOR CONTACT: | Bob Hess | |
503-220-2388 | ||
Bob.Hess@nwnatural.com | ||
PRESS CONTACT: | Steve Sechrist | |
503-220-2594 | ||
sms@nwnatural.com |
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NORTHWEST NATURAL GAS COMPANY
Comparative Income Statement
(Consolidated - Unaudited)
Three Months Ended | ||||||||||||
(Thousands, except per share amounts) | 3/31/06 | 3/31/05 | Increase | % Change | ||||||||
Gross Operating Revenues | $ | 390,391 | $ | 308,777 | $ | 81,614 | 26 | % | ||||
Net Income | $ | 41,033 | $ | 39,887 | $ | 1,146 | 3 | % | ||||
Average Shares of Common Stock Outstanding | 27,584 | 27,578 | 6 | — | ||||||||
Basic Earnings Per Share of Common Stock | $ | 1.49 | $ | 1.45 | $ | 0.04 | 3 | % | ||||
Diluted Earnings Per Share of Common Stock | $ | 1.48 | $ | 1.43 | $ | 0.05 | 3 | % | ||||
Twelve Months Ended | ||||||||||||
(Thousands, except per share amounts) | 3/31/06 | 3/31/05 | Increase | % Change | ||||||||
Gross Operating Revenues | $ | 992,100 | $ | 761,931 | $ | 230,169 | 30 | % | ||||
Net Income | $ | 59,295 | $ | 57,847 | $ | 1,448 | 3 | % | ||||
Average Shares of Common Stock Outstanding | 27,565 | 27,418 | 147 | 1 | % | |||||||
Basic Earnings Per Share of Common Stock | $ | 2.15 | $ | 2.11 | $ | 0.04 | 2 | % | ||||
Diluted Earnings Per Share of Common Stock | $ | 2.15 | $ | 2.10 | $ | 0.05 | 2 | % |
NORTHWEST NATURAL GAS COMPANY
Consolidated Balance Sheets (unaudited) Thousands | March 31, 2006 | March 31, 2005 | ||||||
Assets: | ||||||||
Plant and property: | ||||||||
Utility plant | $ | 1,890,633 | $ | 1,814,991 | ||||
Less accumulated depreciation | 547,635 | 514,785 | ||||||
Utility plant - net | 1,342,998 | 1,300,206 | ||||||
Non-utility property | 40,953 | 34,157 | ||||||
Less accumulated depreciation and amortization | 6,221 | 5,408 | ||||||
Non-utility property - net | 34,732 | 28,749 | ||||||
Total plant and property | 1,377,730 | 1,328,955 | ||||||
Other investments | 54,432 | 57,198 | ||||||
Current assets: | ||||||||
Cash and cash equivalents | 7,522 | 2,740 | ||||||
Accounts receivable | 97,859 | 73,776 | ||||||
Accrued unbilled revenue | 47,764 | 38,880 | ||||||
Allowance for uncollectible accounts | (4,526 | ) | (3,499 | ) | ||||
Gas inventory | 35,906 | 23,139 | ||||||
Materials and supplies inventory | 9,808 | 8,262 | ||||||
Prepayments and other current assets | 57,330 | 21,429 | ||||||
Total current assets | 251,663 | 164,727 | ||||||
Regulatory assets: | ||||||||
Income tax asset | 66,757 | 65,622 | ||||||
Deferred environmental costs | 19,196 | 7,231 | ||||||
Deferred gas costs receivable | 13,522 | 12,978 | ||||||
Unamortized costs on debt redemptions | 6,776 | 7,215 | ||||||
Other | — | 6,732 | ||||||
Total regulatory assets | 106,251 | 99,778 | ||||||
Other assets: | ||||||||
Fair value of non-trading derivatives | 40,879 | 88,634 | ||||||
Other | 9,102 | 7,305 | ||||||
Total other assets | 49,981 | 95,939 | ||||||
Total assets | $ | 1,840,057 | $ | 1,746,597 | ||||
Capitalization and liabilities: | ||||||||
Capitalization: | ||||||||
Common stock | $ | 87,335 | $ | 87,244 | ||||
Premium on common stock | 296,281 | 299,900 | ||||||
Earnings invested in the business | 237,205 | 214,864 | ||||||
Unearned stock compensation | — | (809 | ) | |||||
Accumulated other comprehensive income (loss) | (1,911 | ) | (1,818 | ) | ||||
Total common stock equity | 618,910 | 599,381 | ||||||
Long-term debt | 501,500 | 483,875 | ||||||
Total capitalization | 1,120,410 | 1,083,256 | ||||||
Current liabilities: | ||||||||
Notes payable | 50,400 | 10,500 | ||||||
Long-term debt due within one year | 28,000 | 15,000 | ||||||
Accounts payable | 91,185 | 84,693 | ||||||
Taxes accrued | 25,876 | 22,074 | ||||||
Interest accrued | 11,623 | 11,171 | ||||||
Other current and accrued liabilities | 38,703 | 34,320 | ||||||
Total current liabilities | 245,787 | 177,758 | ||||||
Regulatory liabilities: | ||||||||
Accrued asset removal costs | 173,936 | 157,975 | ||||||
Unrealized gain on non-trading derivatives, net | 23,937 | 78,205 | ||||||
Customer advances | 1,924 | 1,592 | ||||||
Other | 4,283 | — | ||||||
Total regulatory liabilities | 204,080 | 237,772 | ||||||
Other liabilities: | ||||||||
Deferred income taxes | 220,568 | 206,651 | ||||||
Deferred investment tax credits | 4,479 | 5,155 | ||||||
Fair value of non-trading derivatives | 17,586 | 10,429 | ||||||
Other | 27,147 | 25,576 | ||||||
Total other liabilities | 269,780 | 247,811 | ||||||
Commitments and contingencies (see Note 7) | — | — | ||||||
Total capitalization and liabilities | $ | 1,840,057 | $ | 1,746,597 | ||||
NORTHWEST NATURAL GAS COMPANY
Consolidated Statements of Cash Flows (unaudited) | 2006 | 2005 | ||||||
Operating activities: | ||||||||
Net income | $ | 41,033 | $ | 39,887 | ||||
Adjustments to reconcile net income to cash provided by operations: | ||||||||
Depreciation and amortization | 15,830 | 15,195 | ||||||
Deferred income taxes and investment tax credits | (3,267 | ) | (5,822 | ) | ||||
Undistributed earnings from equity investments | 50 | 137 | ||||||
Allowance for funds used during construction | (133 | ) | (86 | ) | ||||
Deferred gas costs - net | (6,548 | ) | (3,427 | ) | ||||
Non-cash expenses related to qualified defined benefit pension plans | 1,441 | 1,159 | ||||||
Deferred environmental costs | (2,014 | ) | (230 | ) | ||||
Income from life insurance investments | (1,383 | ) | (452 | ) | ||||
Other | 4,673 | (1,790 | ) | |||||
Changes in working capital: | ||||||||
Accounts receivable - net | (11,982 | ) | (12,077 | ) | ||||
Accrued unbilled revenue - net | 33,748 | 25,521 | ||||||
Inventories of gas, materials and supplies | 40,447 | 35,076 | ||||||
Income taxes receivable | 13,234 | 15,970 | ||||||
Prepayments and other current assets | (2,249 | ) | 3,644 | |||||
Accounts payable | (44,102 | ) | (17,785 | ) | ||||
Accrued interest and taxes | 21,856 | 20,106 | ||||||
Other current and accrued liabilities | (2,231 | ) | 152 | |||||
Cash provided by operating activities | 98,403 | 115,178 | ||||||
Investing activities: | ||||||||
Investment in utility plant | (15,002 | ) | (19,958 | ) | ||||
Investment in non-utility property | (106 | ) | (194 | ) | ||||
Proceeds from sale of non-utility investments | — | 3,001 | ||||||
Proceeds from life insurance | 964 | — | ||||||
Other | 1,475 | 746 | ||||||
Cash used in investing activities | (12,669 | ) | (16,405 | ) | ||||
Financing activities: | ||||||||
Common stock issued, net of expenses | 859 | 2,569 | ||||||
Common stock purchased | (398 | ) | (2,895 | ) | ||||
Change in short-term debt | (76,300 | ) | (92,000 | ) | ||||
Cash dividends paid on common stock | (9,516 | ) | (8,955 | ) | ||||
Cash used in financing activities | (85,355 | ) | (101,281 | ) | ||||
Increase (decrease) in cash and cash equivalents | 379 | (2,508 | ) | |||||
Cash and cash equivalents - beginning of period | 7,143 | 5,248 | ||||||
Cash and cash equivalents - end of period | $ | 7,522 | $ | 2,740 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Interest paid | $ | 970 | $ | 970 | ||||
Income taxes paid | $ | — | $ | — | ||||
Supplemental disclosure of non-cash financing activities: | ||||||||
Conversion to common stock: | ||||||||
7-1/4 % Series of Convertible Debentures | $ | — | $ | 152 |
NORTHWEST NATURAL GAS COMPANY
Financial Highlights
(Unaudited)
First Quarter - 2006
3 Months Ended Mar. 31, | % Change | 12 Months Ended Mar. 31, | % Change | |||||||||||||||||||
(Thousands, except per share amounts) | 2006 | 2005 | 2006 | 2005 | ||||||||||||||||||
Gross Operating Revenues | $ | 390,391 | $ | 308,777 | 26 | % | $ | 992,100 | $ | 761,931 | 30 | % | ||||||||||
Cost of Sales | 255,399 | 180,608 | 41 | % | 638,651 | 437,436 | 46 | % | ||||||||||||||
Revenue Taxes | 9,528 | 7,183 | 33 | % | 23,978 | 17,941 | 34 | % | ||||||||||||||
Net Operating Revenues | 125,464 | 120,986 | 4 | % | 329,471 | 306,554 | 7 | % | ||||||||||||||
Operating Expenses: | ||||||||||||||||||||||
O&M | 28,247 | 27,195 | 4 | % | 114,268 | 103,840 | 10 | % | ||||||||||||||
General Taxes | 7,573 | 6,770 | 12 | % | 23,988 | 22,367 | 7 | % | ||||||||||||||
D&A | 15,830 | 15,195 | 4 | % | 62,280 | 58,660 | 6 | % | ||||||||||||||
Total Operating Expenses | 51,650 | 49,160 | 5 | % | 200,536 | 184,867 | 8 | % | ||||||||||||||
Income from Operations | 73,814 | 71,826 | 3 | % | 128,935 | 121,687 | 6 | % | ||||||||||||||
Other Income and Expense - net | 518 | 65 | 697 | % | 1,658 | 2,870 | (42 | %) | ||||||||||||||
Interest Charges - net of amounts capitalized | 9,855 | 9,128 | 8 | % | 38,010 | 35,935 | 6 | % | ||||||||||||||
Income Tax Expense | 23,444 | 22,876 | 2 | % | 33,288 | 30,775 | 8 | % | ||||||||||||||
Net Income | $ | 41,033 | $ | 39,887 | 3 | % | $ | 59,295 | $ | 57,847 | 3 | % | ||||||||||
Common Shares Outstanding: | ||||||||||||||||||||||
Average for Period - basic | 27,584 | 27,578 | 27,565 | 27,418 | ||||||||||||||||||
Average for Period - diluted | 27,632 | 27,863 | 27,623 | 27,674 | ||||||||||||||||||
End of Period | 27,579 | 27,551 | 27,579 | 27,551 | ||||||||||||||||||
Earnings per Share: | ||||||||||||||||||||||
Basic | $ | 1.49 | $ | 1.45 | $ | 2.15 | $ | 2.11 | ||||||||||||||
Diluted | $ | 1.48 | $ | 1.43 | $ | 2.15 | $ | 2.10 | ||||||||||||||
Dividends Paid Per Share | $ | 0.345 | $ | 0.325 | $ | 1.34 | $ | 1.30 | ||||||||||||||
Book Value Per Share - end of period | $ | 22.44 | $ | 21.76 | $ | 22.44 | $ | 21.76 | ||||||||||||||
Market Closing Price - end of period | $ | 35.49 | $ | 36.17 | �� | $ | 35.49 | $ | 36.17 | |||||||||||||
Balance Sheet Data - end of period: | ||||||||||||||||||||||
Total Assets | $ | 1,840,057 | $ | 1,746,597 | $ | 1,840,057 | $ | 1,746,597 | ||||||||||||||
Common Stock Equity | $ | 618,910 | $ | 599,381 | $ | 618,910 | $ | 599,381 | ||||||||||||||
Long-Term Debt (including amounts due in one year) | $ | 529,500 | $ | 498,875 | $ | 529,500 | $ | 498,875 | ||||||||||||||
Operating Statistics: | ||||||||||||||||||||||
Total Customers - end of period | 624,297 | 603,330 | 3.5 | % | 624,297 | 603,330 | 3.5 | % | ||||||||||||||
Gas Deliveries (therms) | ||||||||||||||||||||||
Res. & Comm. Customers | 253,899 | 230,683 | 628,658 | 563,132 | ||||||||||||||||||
Industrial Firm | 24,151 | 21,738 | 77,376 | 66,377 | ||||||||||||||||||
Industrial Interruptible | 43,188 | 36,318 | 155,976 | 116,220 | ||||||||||||||||||
Transportation | 86,698 | 80,431 | 334,323 | 366,987 | ||||||||||||||||||
Total | 407,936 | 369,170 | 1,196,333 | 1,112,716 | ||||||||||||||||||
Gas Revenues | ||||||||||||||||||||||
Res. & Comm. Customers | $ | 326,785 | $ | 258,542 | $ | 790,292 | $ | 618,137 | ||||||||||||||
Industrial Firm | 23,752 | 17,544 | 70,455 | 49,874 | ||||||||||||||||||
Industrial Interruptible | 35,352 | 22,613 | 113,479 | 66,019 | ||||||||||||||||||
Transportation | 2,807 | 2,834 | 10,728 | 12,194 | ||||||||||||||||||
Other Revenues | (1,440 | ) | 5,153 | (3,731 | ) | 8,809 | ||||||||||||||||
Total | $ | 387,256 | $ | 306,686 | $ | 981,223 | $ | 755,033 | ||||||||||||||
Cost of Gas Sold | $ | 255,384 | $ | 180,567 | $ | 638,589 | $ | 437,343 | ||||||||||||||
Revenue Taxes | $ | 9,528 | $ | 7,183 | $ | 23,978 | $ | 17,941 | ||||||||||||||
Net Operating Revenues (Utility Margin) | $ | 122,344 | $ | 118,936 | $ | 318,656 | $ | 299,749 | ||||||||||||||
Degree Days | ||||||||||||||||||||||
Average (25-year average) | 1,867 | 1,867 | 4,265 | 4,265 | ||||||||||||||||||
Actual | 1,814 | 1,769 | 4,223 | 3,815 | ||||||||||||||||||
Colder (Warmer) than Average | (3 | %) | (5 | %) | (1 | %) | (11 | %) |